I am looking for a simple (as in virtually idiot-proof) software solution to, on a different directory on the same drive, called whatever (e.g. Itunes-02), recreate the original directory structure of the original directory and then song by song, transform each song from the Itunes lossless into a high quality vbr of around 160 or 192.

But there's an easier way, assuming you have the drive space and time.

Step 1: COPY the entire directory structure to another directory.Step 2: Run any sort of converter that outputs to the source directory.Step 3: Type in the command to delete all the originals within the copied directory

How is that a problem? If you copy the "master" directory that contains all the nested directories, the nested directories will also be copied. del or rm will also go into every directory, with the proper options (which I believe are the /S and -rf previously mentioned - but I'm not 100% sure, so check the help before you run those commands).